Companies Are Allowed to Do Bad Mergers – Bloomberg

The important point here is that courts in Delaware — where many US public companies are incorporated — do not want to be in the business of deciding whether any particular business decision is terrible. So Delaware has a “business judgment rule,” in which courts try not to second-guess the business judgments of corporate directors….

Delaware is proud of this rule; this rule is not just “whaddarya gonna do sometimes boards do bad stuff,” but a positively good thing. Letting boards “make a terrible business decision without any meaningful threat of liability” allows companies to take risks, to make business decisions based on their honest assessment of what is best for shareholders rather than on fear of liability.

And so when a Delaware judge — here, Chancellor Kathaleen McCormick — gets a case like this, and decides that the directors should not be liable, she does not write an opinion saying “ehh this was all fine, it’s not as bad as you think.” She writes an opinion saying “lol this was all ridiculous, but even so I’m going to allow it, because around here we defer to independent boards of directors.”

Source: Companies Are Allowed to Do Bad Mergers – Bloomberg